Whether “the rescission of a contract due to the exercise of the right to cancel or the unavoidable reasons” under Article 25-2 subparag. 2 of the former Enforcement Decree of the Framework Act on National Taxes becomes grounds for a subsequent claim for rectification (affirmative in principle) and where such rescission cannot serve as grounds for a subsequent claim for rectification.

In addition to corporate tax, the “ex post facto request for correction” under Article 25-2 Subparag. 2 of the former Enforcement Decree of the Framework Act on National Taxes (amended by Presidential Decree No. 22038, Feb. 18, 2010) is a ground for ex post facto request for correction: Provided, That with respect to the rescission of a specific contract under the Corporate Tax Act or the relevant provision, where there are special circumstances, such as where the person liable to pay tax reports corporate tax in the manner of deducting the amount of income in the business year in which the date of cancellation falls, from the income in which the amount of income not realized is separately provided as a ground for deducting the amount of income in the business year in which the date of cancellation falls, or the revocation of a sales contract, etc. that occurs on ordinary and semi-annually basis, etc.

Article 45-2(2)5 of the former Framework Act on National Taxes (Amended by Act No. 911, Jan. 1, 2010); Article 25-2 subparag. 2 of the former Enforcement Decree of the Framework Act on National Taxes (Amended by Presidential Decree No. 22038, Feb. 18, 2010); Article 40(1) of the Corporate Tax Act

Bosch Rexning Co., Ltd. (Law Firm Daoon, Attorneys Seo-ho et al., Counsel for the defendant-appellant)

Sung-dong Head of the tax office (Government Law Firm Corporation, Attorneys Go Young-seok et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2011Nu33008 decided April 25, 2012

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Article 45-2 Subparag. 2 of the former Framework Act on National Taxes (amended by Act No. 911, Jan. 1, 2010) provides that “When a contract related to the validity of a transaction or act, etc., which served as the basis for calculating the tax base and the amount of tax in the initial return, determination, or correction, is rescinded by the exercise of the right of rescission or is cancelled or cancelled due to unavoidable reasons that occurred after the formation of the relevant contract,” as one of the grounds for a later filing of correction claim.

The purpose of the ex post facto request for correction is to expand the protection of taxpayers’ rights by allowing taxpayers to file a request for reduction of their tax base and amount of tax when there is a change in the basis for calculating the tax base and amount of tax due to the occurrence of a certain later cause after the establishment of the tax liability (see, e.g., Supreme Court Decision 2009Du22379, Jul. 28, 2011). Unless otherwise provided for in individual tax-related Acts, the scope of application should not be arbitrarily restricted.

Meanwhile, Article 40(1) of the Corporate Tax Act provides that “The business year to which the income and the deductible expenses of a domestic corporation accrue shall be the business year which includes the date on which the income and the deductible expenses are determined,” thereby adopting the so-called principle of confirmation of the right to taxable income by deeming the income as realizing the income if the right which has become the cause of the income has not been actually realized, and where there is a time interval between the time when the right which is the cause of the income and the time when the income is realized, the right is not the time when the income is realized, but the time when the right is finally generated, and the income is deemed as the time when the right is determined at the time when the income is realized, and in substance, the tax is allowed to be imposed in advance on the income of which the receipt is uncertain in the manner of calculating the income for the pertinent business year. Therefore, even if the tax liability becomes final upon the occurrence of the right to which the income was the cause of the income and becomes final and conclusive, if the tax liability becomes final and conclusive due to the occurrence of a certain cause, it cannot be imposed in principle (see, etc.).

Therefore, in principle, the “cancellation of a contract due to the exercise of the right to cancel or due to unavoidable reasons” under Article 25-2 Subparag. 2 of the former Enforcement Decree of the Framework Act on National Taxes shall be deemed grounds for filing a subsequent claim for rectification: Provided, That in special circumstances where the Corporate Tax Act or relevant regulations stipulate the amount of income not realized due to the cancellation of a contract for a certain period of time separately as grounds for deducting the amount of income in the business year to which the date of such cancellation belongs, or where the taxpayer has reported corporate tax in the manner of deducting the amount of income in the business year to which the date of such cancellation belongs in accordance with corporate accounting standards or practices, such cancellation of a contract shall not affect the original tax liability to which the date of

2. citing the reasoning of the judgment of the court of first instance, the court below accepted the Defendant’s request for correction from 206 and 207 to 200, for the first 5 business years, for the cancellation of the sale contract of Samsung 29 to 30% of the total sale contract of Samsung 29 to 30% of the sales contract of this case (24,701,924,000 won) and 15% of the sales contract of this case (2,000 won). The Plaintiff’s request for correction from 205 to 30% of the sales contract of this case to 30% of the total sale contract of this case to 29% of the sales contract of this case to 30,000 won. The court below decided that the Plaintiff’s request for correction from 205,000 won to 30,000 won of the sales contract of this case to 30,000 won of the sales contract of this case to 29% of the sales contract of this case.

3. Examining the aforementioned legal principles and records, the lower court’s determination is justifiable. In so doing, contrary to what is alleged in the grounds of appeal, there were no errors by misapprehending the legal principles on the grounds for ex post facto request for correction, the principle of confirmation of rights and duties, or the change of accounting presumption in accordance with the corporate accounting standards.

4. Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Ko Young-han (Presiding Justice)